Corporate Finance

Download Assessing the Economic Value of Venture Capital Contracts: by Jil Caroline Onimus PDF

By Jil Caroline Onimus

Jil C. Onimus makes a contribution to the nascent learn line at the financial price a bet capital contracts which lies on the intersection a raffle capital agreement layout and genuine choice pricing. She identifies the hampers of actual strategies embedded in version enterprise capital contracts as released by way of the nationwide enterprise Capital organization (NVCA) and indicates how they are often priced in interplay utilizing Least Squares Monte Carlo simulation. The pricing version is calibrated through a dataset of deal phrases in Silicon Valley in addition to information from the NVCA. via utilising the version to plain funding eventualities (multiple financing rounds with a number of investors), the writer obtains estimates of alternative values for person phrases and for complete contracts with interplay effects.

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Extra resources for Assessing the Economic Value of Venture Capital Contracts: An Option Pricing Approach

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Option: a security which gives the holder the right to purchase shares in a company at a pre-determined price. Options are usually used for long term, phased compensation to management and employees. – Warrant: A warrant is a long term option, usually valid for several years or indefinitely. Typically, warrants are issued concurrently with preferred stocks or bonds in order to increase the appeal of the stocks or bonds to potential investors. – Combinations of debt and equity: instruments composed of debt capital in combination with straight or preferred equity capital.

The sample size of 2,168 financings represents nearly 40% of the total VC financings reported in the region over this period (see NVCA, 2009, p. 27). The findings from this dataset are used to specify the parameters of the underlying asset path (in this section) and to obtain frequencies of use for individual provisions (used in later sections). To ensure the correct interpretation of results, the author has performed an expert interview with Michael Patrick, Partner at the Corporate Group of Fenwick & West in Mountain View and co-author of the deal terms report.

Valuation Methodology 33 differ significantly. The pricing model developed in this thesis calculates contract values from the perspective of the investor who participated in the first VC financing round. At the same time, it accounts for the fact that certain contractual rights can be jointly held by multiple investors, in which case the options embedded in these rights are shared among multiple parties. Options embedded in VC contracts can be modeled using two independent variables: time (ti ) and price per share (or share value) (P (ti )).

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